Gujarat: Sifting fact from fiction

Gujarat’s economic performance has been facing great scrutiny ever since chief minister Narendra Modi emerged as one of the top prime ministerial candidates of the BJP. Photo: Mint

Updated: Sun, Aug 11 2013. 08 31 PM IST

Gujarat’s economic performance has been facing great scrutiny ever since chief minister Narendra Modi emerged as one of the top prime ministerial candidates of the Bharatiya Janata Party (BJP). I have been asked to compare Gujarat’s economic performance during the past decade with that in the past and separate fact from fiction surrounding the ‘Gujarat growth model’.

Gujarat has been an open society and a fast growing economy for long. Over the past 20 years in particular, Gujarat has been one of the fastest growing states, although not the only one, in the country. The state grew at a compounded annual growth rate of 10.1% between fiscal years 2005 and 2012, beating the national average. But even in the 1990s, the state grew at an above-average pace, expanding at an average annual pace of 7.8% between fiscal years 1994 and 2000 (using constant 1994 prices). With the national economy growing slower then, the difference was larger.

High growth in key sectors such as manufacturing or in trade, hotels and restaurants has been a regular feature of the state over the past two decades. For instance, in the six years between fiscal years 1994 and 2000, Gujarat’s manufacturing sector nearly doubled in size. Openness, however, makes this economy vulnerable to global disruptions: both in the aftermath of the 2008 credit crunch and the 1997 Asian crisis, Gujarat performed poorly. The state domestic product growth, for instance, fell to 6.8% during fiscal year 2009 and manufacturing growth fell to 4.3%. Policymakers need to take steps to insulate the economy from such volatilities.

Contrary to popular notions, Gujarat does not rank among the top states when it comes to attracting foreign direct investments (FDI). But it is among the big technology importers, and in that sense, quite globalized. Even small-scale firms in Gujarat such as those in the diamond industry use state-of-the-art technology.

In agriculture, Gujarat’s performance over the past decade has been much better than in the past. To be sure, it is not as high as 8-10%, as economists as diverse as Shankar Acharya, Bibek Debroy, Ashok Gulati, Ravi Dholakia and Arvind Panagariya seem to suggest. A 4% plus annual growth in agriculture is seldom sustained in world history as I discovered while building the Food and Agriculture Organization’s (FAO) global agriculture model, and even if we did not achieve 10% growth, our growth is respectable.

The 8-10% growth estimate that many quote arise from two unpardonable statistical sins: One is choosing either a bad initial year or a bumper terminal year, and the second is using current rather than constant prices. Avoiding such pitfalls, and adjusting for the price difference between the 1999 and 2004 data series, we can splice the data to arrive at an agricultural growth estimate of 5.1% between fiscal years 2003 and 2011. Gujarat’s farm growth has been less than 10%, but it still remains among the highest farm growth rates attained anywhere.

The state’s mega irrigation scheme, the Sardar Sarovar Project (SSP), was commissioned in 2002 and aided farm growth. The SSP canal systems were incomplete and led to uncontrolled water supplies. Since commercial crops are more vulnerable to damages because of flooding, farmers opted for cereals rather than cash crops. The proportion of food grains, which had declined 16 percentage points between fiscal years 1991 and 2001 to reach 29% of cropped area, again rose in the past decade to reach 37% of the cropped area in fiscal year 2010. Instead of diversifying, Gujarat started producing more wheat and rice. The state benefited from the availability of water but the benefits could have been much higher if the canal systems had been completed in time.

Policymaking in Gujarat has suffered from two big failures. First, just as in other states, Gujarat has underestimated the shift of population from villages to cities, leading to haphazard urbanization over the past decade. Second, it has failed to correct the gender disparities and the historical neglect of the eastern region, where most tribals of the state reside.

In Gujarat, the urbanization ratio moved up from 37.4% in 2001 to 42.6% in 2011, beating official projections of 40.4%. My estimates had shown that official projections were underestimating the growth of urbanization by half, and the 2011 figures proved me right. Millions of farmers, agricultural workers and artisans are moving from smaller villages to larger villages, from larger villages to smaller towns and from there to larger towns, but were not planned for.

Gujarat has a successful girl literacy enrolment plan. But overall, social indicators for backward regions and for women and the girl child are disturbing. According to a 2011 study by economists Durgesh Pathak and Srijit Mishra of the Indira Gandhi Institute of Development Research, rural poverty in eastern Gujarat was as high as 51%. Rural poverty levels for scheduled castes and scheduled tribes stood at 50% and 57%, respectively, according to the same study. Poverty rate among other backward classes was 42%. For others, namely the general population, poverty level was less than 15%.

Gujarat’s poor performance on social inclusion must be rectified. The eastern belt, or the poorvi patti, as we call it, needs an ambitious bootstrapping plan involving investments in physical and social infrastructure. Gujarat, given its capabilities, can do it, provided it is driven by a long-term vision.

Yoginder K. Alagh is chancellor, Central University of Gujarat and a former Union minister. Comments are welcome at theirview@livemint.com